Behind Bitcoin price's slump- fading animal spirits
The malaise surrounding Bitcoin price runs deep. The world’s largest cryptocurrency has been languishing around $47,000, well below early November’s highs of nearly $69,000. A look under the hood helps explain why: Trading volumes have dried up, futures open interest is plunging and the number of active addresses has stalled out.
Taken together, the data paint a picture of diminished animal spirits after Bitcoin peaked following the fall launch of the first U.S. futures-tracking exchange-traded funds. Dip buyers -- a once-reliable fixture in cryptocurrency markets -- have yet to meaningfully reemerge even after a 33% drawdown. Meanwhile, after billions of dollars worth of leveraged positions were flushed out in last month’s flash crash, new investors have yet to fill the void.
“There was a lot of leverage in the system in May and then in the lead-up to November,” said Jim Greco, a managing director at Radkl, a crypto-trading firm. “There could be a lot of people who got washed out and they need to be replaced by new capital.”
Trading activity in Bitcoin has trailed off as enthusiasm has ebbed. After trending lower for months, volume across exchanges clocked in at a mere $4.8 billion on Tuesday, data from Kaiko compiled by Messari show. That’s down from $13.1 billion a year earlier, and is well below the one-year average of roughly $9.2 billion.
Volume hasn’t broken above $10 billion since Dec. 4, when the price of Bitcoin plunged more than 20% in a matter of minutes in a display of the coin’s notorious weekend volatility. About $2.4 billion of crypto exposure, both long and short, was liquidated during the drop, according to data from Coinglass.com.
“We saw a number of U.S. funds, prop shops and hedge funds put risk back on
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